Dermot Hayes Knows the Importance of NAFTA

Dermot Hayes is concerned: He knows how important the Mexican market is to U.S. pork producers. This editor sat down with Hayes recently to ask him questions about important export markets, and the changes he's seen during his 31 years in covering economics and trade at Iowa State University.

In this segment, Hayes discusses how trade with Mexico will change if the North American Free Trade agreement were to be dissolved. Here is his response, in his words:

The North American Free Trade Agreement (NAFTA) gave us a competitive advantage and we expanded. Canada would love it if we pulled out of NAFTA, because Canada would have access to Mexico and the Canadian Prairie Provinces would grow.

Also, the Mexican government had explored opening its market to European pork, duty free, but Mexican pork producers opposed that and it got hung up in the courts.

I suspect if we pull out of NAFTA, Mexico will use the six-month waiting period to allow duty-free access for European product. It was close before when producers held it up, but if producers realize that they’ll be out of the market, then it’s quid pro quo. At that point, they’d be happy to let the European product in to keep the prices down for consumers.

That’s what trade does: it makes consumers so wealthy that they can consume more domestic product as well as imported product. Mexico has boomed because of NAFTA and they have a lot to lose if NAFTA goes away.

There was a carefully done study by IMPACT Econ of what would happen to the U.S. and Mexico if we went back to Most Favored Nation duties. The net job loss in the U.S. was 50,000, but the net job loss in Mexico, economy–wide, was more than 1 million.

I was in Mexico during the U.S. election and got to sit in on meetings with high-level officials. They are so upset with us over the wall and all the other things that were said about their country and their people. The politicians have the support of the people on their NAFTA stance and they’re going to call our bluff. I think Mexico is willing to put up with economic dislocation because they don’t want to be bullied, or pay for a wall.

It’s so obvious that we’re bluffing on our NAFTA push-back. If you ever play poker with an obvious bluffer, they always lose, and I think we’re going to lose on this one. It’s really frustrating to me.

Editor’s Note: We’ll share more insights from Dr. Hayes in articles throughout the upcoming week.